Iran-Sanctions Bid Targets Oil, Tanker Companies’ Sales

Feb. 6 (Bloomberg) -- A U.S. proposal to sanction Iran’s
state-owned oil company and its main tanker fleet may ensnare
any person or business in the world involved in purchasing or
shipping Iranian oil.

Tensions over Iran’s nuclear program have risen sharply in
the last week, with U.S. officials such as Defense Secretary
Leon Panetta expressing concern about a potential Israeli
military attack by mid-year. As a result, pressure is mounting
for additional steps against Iran’s economy to force Iranian
Supreme Leader Ali Khamenei to halt his country’s suspected
pursuit of nuclear-weapons capability.

The Senate Banking Committee unanimously adopted a measure
Feb. 2 that would compel the administration to investigate links
between Iran’s crude-oil supply chain and its powerful Islamic
Revolutionary Guard Corps, an elite military unit that the U.S.
has sanctioned for weapons proliferation, terrorism support and
human-rights abuses.

Proponents say hobbling the oil revenue of Iran, the No. 2
producer in the Organization of Petroleum Exporting Countries,
is the best way to forestall military action by Israel or the
U.S. Iran says its nuclear program is for civilian energy and
medical research only.

The White House said today that President Barack Obama had
ordered a freeze on all Iranian government and financial
institutions’ assets under U.S. jurisdiction, which would apply
to the state-owned oil company.

‘Huge’ Consequences

While the administration shares the lawmakers’ goals to
ratchet up pressure on Iran, it is concerned that adding more
U.S. sanctions -- before other recent penalties have been
implemented -- may make some oil buyers unwilling to comply and
strain the coalition against Iran, according to U.S. officials
who spoke on condition of anonymity because of the issue’s
sensitivity.

The economic consequences of blacklisting Iran’s oil
“would be huge,” Ali Alfoneh, an Iran specialist at the
American Enterprise Institute, a Washington policy group, said
in an interview. If other nations comply, “this is in effect an
international oil embargo.”

The Senate measure would give the U.S. Treasury Department
60 days to investigate whether the Revolutionary Guard owns or
controls the National Iranian Oil Co., or NIOC, and the National
Iranian Tanker Co., or NITC. The provision, along with a House
bill filed Jan. 31, would empower the president to penalize
foreign institutions by cutting them off from the U.S. banking
system if they deal with the two companies. The proposals allow
waivers based on oil market conditions or “significant”
reductions in Iranian-oil purchases.

‘Distressed Asset’

A global oil embargo isn’t the intent of the congressional
proposals, according to Mark Dubowitz, executive director of the
Foundation for the Defense of Democracies, a Washington policy
group that has advised Congress and the administration on
sanctions.

Tainting Iran’s oil by association with the Revolutionary
Guard turns it into “a distressed asset” and increases “the
hassle factor” in buying it, he said in an interview. Law-abiding buyers will seek other suppliers, while those who flout
sanctions will bargain to buy it cheaply, he predicted.

China was the leading importer of Iranian oil in the first
six months of last year, followed by Japan, India and South
Korea, according to the U.S. Energy Information Administration.

No. 2 Oil Company

Frank Verrastro, director of the Energy and National
Security Program at the Center for Strategic and International
Studies in Washington, criticized Congress as “incredibly
irresponsible” for seeking more sanctions, as the
administration already is trying to get other nations to
voluntarily reduce Iranian oil purchases while avoiding a price
surge.

Tommy Vietor, a White House spokesman, declined to comment
on the proposals yesterday.

NIOC is owned by the government of Iran and is the world’s
second-largest oil company by volume produced, after the Saudi
Arabian Oil Co. NITC, a former subsidiary of NIOC that was
privatized 12 years ago, has the world’s fourth-largest fleet of
supertankers, according to London-based Clarkson Research
Services Ltd., a unit of the world’s largest shipbroker.

At the very least, sanctions would make it “very hard to
buy Iranian oil,” and Iran’s tankers “would not have access to
port facilities internationally, because countries would rather
deal with the U.S. than with Iran,” Alfoneh said. U.S.
companies and individuals are already barred from almost all
business with Iran.|

Iran’s Blacklist

Iran has vowed to rely on local technology and expertise in
the oil industry as international investments and joint ventures
have dried up in the face of tougher international sanctions.

Today, Iranian Oil Minister Rostam Qasemi ordered five
European companies, including Royal Dutch Shell Plc and UOP LLC,
a unit of U.S.-based Honeywell International Inc., blacklisted
for failing to meet their commitments to the nation’s refinery
projects, the state-run news agency Mehr reported.

Queries to NIOC’s managing director Ahmad Qalebani about
the U.S. congressional bid to investigate the Guard’s ties to
the oil company were referred to the public relations office. No
spokesman was available after three phone calls yesterday.

In a telephone interview from Tehran yesterday, NITC’s
general manager of planning, Abdolsamad Taghol, dismissed any
suggestion of military links to the tanker line. NITC operates
independently, without administrative, financial or political
ties to the Guard, with only civilian personnel, he said.

Iranian Denial

“NITC’s income has never been part of the state budget,
and the sole beneficiaries” of NITC’s revenue are its
shareholders, 7 million Iranian retired pension-fund owners, he
said. Taghol cited his company’s partnership with BP Shipping
before the 1979 Islamic revolution, and said management includes
those trained by BP.

The proposed designation of the two companies would add to
an array of financial and energy-related penalties imposed by
the U.S. and the European Union in the past three months. The
EU, collectively the No. 2 importer of Iranian oil in the first
half of 2011, last month approved a ban on Iranian oil purchases
by the 27-nation bloc set to take effect July 1.

Senator Bob Menendez, a New Jersey Democrat, and
Representative Howard Berman, a California Democrat, are behind
the new proposal. The Senate measure is part of a larger bill
targeting Iran-related banking transactions and mining and
energy projects, and requiring corporate disclosure of Iran-related activity to the Securities and Exchange Commission.

‘Blood Oil’

Oil is Iran’s main source of income, supplying more than 50
percent of the national budget, according to International
Monetary Fund figures. Oil earned the Persian Gulf nation $56
billion in the first seven months of 2011, according to the U.S.
Energy Department.

In August, Qasemi, a former Revolutionary Guard commander
and former head of Khatam al-Anbiya, its engineering arm, was
named Iran’s oil minister and chairman of NIOC. He has been
sanctioned by the U.S., the EU and others for his ties to the
Guard. Khatam al-Anbiya has been sanctioned by the U.S., the EU
and the United Nations for being part of the Guard.

Seven of eight members of NIOC’s board of directors are
executives who serve or used to serve as general managers of
NIOC subsidiaries that did business with Khatam al-Anbiya,
according to research conducted by the Foundation for the
Defense of Democracies and Arcanum Global, a private
intelligence firm with international headquarters in Zurich.

Not Clear Cut

Three of eight members of NIOC’s general assembly, which
sets the company’s policy and budget, are former Revolutionary
Guard members: Qasemi and the ministers of energy and of
industries and mining, according to the research.

Dubowitz’s foundation has said it has established “direct
and indirect involvement” of the Revolutionary Guard in NIOC’s
oil deals in Bolivia, India and Malaysia.

Alfoneh, a specialist on the Revolutionary Guard, said he
has tracked growing involvement by the Guard in energy, though
he has failed to find evidence showing the group controls the
oil company or its decision-making. Likewise, while the Guard
are involved in Iran’s shipping and ports, Alfoneh said he has
no evidence linking the Guard to the tanker company.

‘Best-Run’ Company

Kenneth Katzman, a senior Middle East analyst at the non-partisan Congressional Research Service in Washington, said Iran
“has tried to insulate” both companies from political pressure
and patronage, and asserted that “NIOC is widely considered a
professional organization -- one of the best-run in Iran.”

Katzman, author of “Warriors of Islam: Iran’s
Revolutionary Guard,” said Iran has appointed former
Revolutionary Guard members to other ministries, and later
replaced them with civilians, never putting the ministries under
the Guard’s control.

It’s like arguing that “some U.S. firm is coming under
U.S. military control because a lot of former military people
have high positions there,” he said in an interview.

The U.S. administration, including Secretary of State
Hillary Clinton, has repeatedly accused the Revolutionary Guard
of expanding influence in the most lucrative sectors of Iran’s
economy.

Ships Reflagged

The U.S. has already sanctioned Iran’s national maritime
carrier, the Islamic Republic of Iran Shipping Lines, for
involvement in missile programs and transporting military
cargoes. A report last month by the Stockholm International
Peace Research Institute concluded the carrier had renamed 90 of
its 123 ships since 2008 and reflagged some of its fleet in an
effort to circumvent sanctions.

“There’s always going to be some ways around” U.S.
sanctions on oil or tankers, said Michael Swangard, an
international trade and commodity partner at Clyde & Co., a
London-based law firm. “The rubber only meets the road” when
countries agree to a united approach, he said.

Iran, the second-largest oil producer in OPEC after Saudi
Arabia, pumped about 3.545 million barrels of oil a day last
month, a Bloomberg survey showed, and exported an average 2.58
million barrels a day in 2010, according to OPEC statistics.

Crude for March delivery lost 78 cents to $97.06 a barrel
on the New York Mercantile Exchange at 1:40 p.m. today.